THUNDER BAY – Business – If you’ve shopped around for life insurance in the past, you’ve come across both options during your decision. Your decision likely came down to term insurance first and permanent second. This is the natural choice for most as the price of term will catch the eye of most looking for it. Without being bias and looking at the pros and cons of both types of plans, which type of plan is right for you?
The Benefit to only Buying Term Insurance
Term coverage is the type of life coverage that most tend to opt with as it covers what they’re looking for and for the length of time they want that coverage. Should the life to be insured pass away, the beneficiaries would receive 100% of the face amount of the coverage. Premiums for this type of coverage are much cheaper, and can be typically purchased until age 75 for 10 year terms and 65 for 20 year terms. Approval for any type of life insurance policy is always dependant on a medical exam and questionnaire.
Whole-life Insurance – Insurance & Investment
Whole-life insurance combines the benefit of life insurance with an investment portion. Investments are typically a combination of stocks and bonds and tend to be focused on lowing volatility. However it may be whole life plans build a cash reserve for you that can be used to get back in cash or in a loan. As you continue to pay your premiums, your total insurance value will rise in addition to your cash value. Most of the growth within these plans isn’t seen until after the first 10 to 20 years. Some opt to purchase a 20 year whole-life plan so that they are only paying the premiums for 20 years instead of their whole life. Each individual option depends on what your end goal is. If you’re looking to leave something to the next generation, whole life plans make sense as the insurance company must pay out at the time of death in the amount that is typically much more than what was originally put in.
A combination of both?
As you can see there are clear benefits to both types of plans, but most people opt for one or the other. A combination of both may be right for you as it insures your short term need, but also covers a long term goal. A combination of both will typically cost twice in price of a term plan but will have the same face amount. It is an option that many opt for in order to gain the benefits of both.
The Bottom Line
Both types of coverage have their pros and cons, and each individual will value those differently. Look at why you want the coverage and what your end goal is and typically you’ll find a benefit in one of the plans that sells you on it. Always have your financial advisor give you a price on both options, so that you can weigh the pros and cons yourself and make a decision you can live with.
Anthony M. Talarico